Buy-side firms will be challenged by new T+1 deadlines for allocations, affirmations, and recalls, says industry veteran Robert Walley at Deloitte.
Robert Walley
(FTF News recently got time with Robert Walley, principal, financial services at consultancy Deloitte, to discuss the securities industry’s move to a shorter settlement cycle of trading day plus another day, a.k.a. T+1, which is underway in North America. Walley leads Deloitte’s capital markets and global financial markets industry sectors. He helps clients with transformations and operationalizing rules and regulations and non-financial regulatory reporting. He will serve as the moderator for an FTF webinar “T+1 to T+0 Operations – The Ultimate Endgame,” on Oct.12, 2023, at 11 am EST/4 pm BST. For more information and to register, click here)
Q: What is the likelihood that the SEC will move its T+1 deadline of May 28, 2024?
A: In short, the date will not move unless the SEC feels there is a risk.
Neither industry nor trade associations are lobbying for the date to be moved. The industry is fully on board and plans to transition on the effective date.
Q: Although the sell side is taking on quite a bit for T+1, what is the role of the buy side in getting the industry to meet the T+1 deadline?
A: Buy-side firms are part of the ecosystem and must be fully engaged to fulfill their obligations. The two primary obligations are to provide the allocation information to their executing broker before 7:00 p.m.
Industry best practices would suggest that as trades are completed, that all allocation information should be sent as soon as possible and not wait until the end of the day.
Buy-side firms must affirm their trades by 9:00 p.m. Today, affirmation rates are in the 70’s by 9:00 p.m.
Again, when the trade is made and allocations are sent, buy-side firms must affirm their trades.
Q: How would you describe the buy side’s reaction to the T+1 push?
A: Generally, the buy side has not shown urgency nor expressed impact to their businesses.
Since there are technical changes required to meet T+1, the most significant impacts are business processes and behavior.
Unlike the move to T+2, which was primarily technical and had no change to timing, T+1 timing changes will have a significant impact on sell-side and buy-side firms.
Q: If some buy-side firms have been slow to get on the bandwagon, what will it take to get them fully onboard with T+1?
A: They must understand and work with their brokers to understand what causes breaks and what can be done to minimize the manual interventions.
Firms need to look at their operations staff to make sure they have staffing available after the market closes.
Lastly, firms need to participate in industry-wide testing, know their dependencies on vendor solutions, and make other technical changes.
Q: Do you expect an uptick in settlement fails when the industry transitions to T+1?
A: I believe there will be an uptick in fails while the industry as a whole transitions to T+1 and the new associated deadlines for allocations, affirmations, and recalls.
It will take time for all parties to be prepared, to have the information ready, and to be able to make corrections.
In today’s world, firms have 19 hours to prepare and send information to their brokers. In the T+1 world, they will have five hours. That is a major shift. That’s not to say that trades won’t settle, but they will settle at a higher cost and will not take advantage of netting.
Firms need to anticipate an uptick in fails and have funding available to cover them.
Q: What can buy-side firms do now to prevent or minimize the expected settlement failures?
A: Be prepared, understand where hands are on keyboards, what are the expectations of your executing brokers, and, operationally, have staff available to support the after-market activities later into the evening.
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